What is the difference between Chapter 7 and Chapter 13?

The short version

Chapter 7 is for people whose problem is unsecured debt they cannot pay: credit cards, medical bills, personal loans, old utility bills, deficiency balances from a repossession or foreclosure. The case takes about four months. At the end, those debts are discharged. You keep everything that is protected by an exemption, which for most people is everything they own.

Chapter 13 is for people who have something to protect or something to catch up on. You propose a plan to pay creditors some amount over three to five years, and in exchange you keep your property, cure missed mortgage or car payments, and deal with debts that Chapter 7 cannot touch, like recent taxes or past-due support. At the end of the plan, remaining dischargeable debt is wiped out.

Who can file

Chapter 7 has an income screen called the means test. If your household income is below the median for your state and household size, you pass. If it is above, a second calculation looks at your allowed expenses, and many people above the median still qualify. Chapter 7 is also unavailable if you received a Chapter 7 discharge within the past eight years.

Chapter 13 requires regular income sufficient to fund a plan, and your debts must be under limits that are adjusted periodically and are high enough that they rarely matter for consumers.

How long

Chapter 7: about four months from filing to discharge in a routine case.

Chapter 13: three years if your income is below the state median, five years if it is above. The plan can end early only if creditors are paid in full.

What it costs

Court filing fees are $338 for Chapter 7 and $313 for Chapter 13 as of this writing, and change from time to time. In Chapter 7, people with very low income can ask to have the fee waived. Attorney fees vary widely by region and complexity. Chapter 13 attorney fees are usually higher in total but can often be paid through the plan rather than up front, which is why Chapter 13 is sometimes the more accessible option for someone with no cash.

What happens to your property

In Chapter 7, a trustee can sell property that is not covered by an exemption. In most cases nothing is sold. In Chapter 13, nothing is sold, but your plan must pay unsecured creditors at least what they would have received from a Chapter 7 sale.

Which debts go away

Both chapters discharge the same core group of unsecured debts. Neither discharges child support, alimony, most student loans, recent income taxes, criminal fines, or debts from fraud or intentional injury.

Chapter 13 discharges a few things Chapter 7 does not, including certain property settlement obligations from a divorce and debts incurred to pay a non-dischargeable tax. It also lets you pay non-dischargeable debts like recent taxes over time, interest-free in many cases, while the automatic stay keeps the taxing authority off your back.

How people usually decide

If your debt is mostly unsecured, you are current on your house and car (or willing to let them go), and you pass the means test, Chapter 7 is usually simpler, faster, and cheaper.

If you are behind on a mortgage you want to keep, own property with equity above your exemptions, owe recent taxes or support arrears, or do not pass the means test, Chapter 13 is usually the tool that fits.

Plenty of people are somewhere in between, which is where a conversation with an attorney earns its keep. And if you want the full picture of either chapter before that conversation, each has its own start-to-finish answer: How Chapter 7 works and How Chapter 13 works. It is worth saying that Chapter 13 gets an unfairly bad reputation as the consolation prize; for people with a house to save, taxes to manage, or property to protect, it is often the stronger tool by far.